Insights from the 4Q18 global technology sector reporting season

EY has analyzed the most important issues addressed by 26 leading global technology companies during their earnings calls for the most recent calendar quarter. These insights provide a snapshot of four of the main themes representing the top-of-mind issues of technology leaders and investors.

This quarter, companies addressed the dynamics of shifting portfolios to an “as a service” model, the impact of trade disputes and an overall slowdown in China’s economic growth, emphasizing operational efficiency to improve margins and the need for continued investment in new technologies to drive growth and innovation.

1.    Increasing “as a service” subscription revenue

Analysis: To facilitate “as a service” business models and capture cross-selling opportunities, technology companies need to change their business models including different sales incentives, new (cloud) service delivery models, better customer insights and improved customer experience.

EY insights: As more companies shift to subscription-based business models, sales plans, compensation, delivery channels and customer experience are now top-of-mind issues among leading technology companies.

2.    Macro uncertainties around China are impacting hardware and component vendors

Analysis: Companies are assessing the impact of macro and regulatory developments on their own business and their supply chain. Reacting to these changes and mitigating the potential impact require real-time insights into the supply chain.

EY insights: The likelihood of geopolitical events, such as trade disputes, regulatory changes and nationalization, seriously disrupting the supply chain is only increasing. This is putting enterprise risk management and sourcing options on the top of the business agenda.

3.    Cost reduction efforts intensified

Analysis: In uncertain economic times, operational excellence is the main driver to cut cost and improve profit margins. Digital technologies, cloud, automation and other new innovations are providing new opportunities to achieve operational excellence.

EY insights: Intelligent automation will provide a lot of upside to back-office functions. Robotic process automation, machine learning and predictive analytics are having an impact today. Leading technology companies have already insourced their formerly outsourced activities with the help of automation.

4.    Investments in 5G are ramping up

Analysis: The rollout of 5G will boost investment in the second half of 2019. Semiconductor companies, component suppliers, equipment vendors and service providers will benefit. 5G will boost new Internet of Things (IoT)-related opportunities in various vertical industries, for which technology companies need to prepare.

EY insights: New 5G technologies will provide a wealth of opportunities. Service providers across various verticals are scrambling to build economically viable business cases, but may experience delays in getting new solutions to market.

Additional findings from the report include rankings of the top macro influences, business issues and technology themes identified by leading technology companies in 4Q18.

The key trend we saw in 4Q18 is an increasing focus on new business models, innovation and efficiencies as growing macroeconomic uncertainties create potential challenges for many leading technology companies. I’ll continue to bring you the latest insights from our tech sector teams on a quarterly basis, with companies evolving as new services hit the market, business models change and new technologies are implemented.